UPDATE 1-Indonesia set for mega bank shake-up in bid to create national champion

* Analysts see potential for efficiencies but warn on competition (Adds comments of analysts, details of plan, and context)

By Cindy Silviana

JAKARTA, Jan 31 (Reuters) - Indonesia will finalize in May a plan to put four state banks under a holding company, marking the sector’s biggest shake-up since the Asian financial crisis as authorities try to create a lending powerhouse in Southeast Asia’s biggest economy.

PT Danareksa, a government-owned financial company, will be set up to act as a holding company, State-Owned Enterprises Minister Rini Soemarno told reporters on Wednesday.

The four banks are Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Negara Indonesia (BNI) and Bank Tabungan Negara (BTN). State pawnshop PT Pegadaian and state small business financing firm PT Permodalan Nasional Madani will also be under the holding company, she said.

Soemarno did not provide further details on the holding company, which would oversee 40 percent of Indonesia’s banking assets, worth hundreds of billions of dollars.

Officials have previously said that the aim of the holding company was to support the government’s development agenda, including by encouraging infrastructure and lending for homes.

According to Gatot Trihargo, deputy minister of State-Owned Enterprises, Danareska would help allocate capital amongst the lenders, either from dividend payments or from fund raising.

This could prove especially important for banks with tighter liquidity, such as BTN, Trihargo said.

He told Reuters the government expects the holding company to be able to raise funds more successfully and improve its competitiveness versus its privately owned rivals.

Since 2017, the state-owned lenders have put their ATM and EDC (electronic data capture) operations under one company called PT Jalin Pembayaran Nusantara.

“It’s positive and would especially streamline their decision making process and give them better capabilities in terms in raising capital,” Franky Rivan, an analyst at Kresna Securities, said of the holding company plan.

Some analysts, however, expressed worries it would come at the expense of private banks.

“Ultimately it might also make the Indonesian banking sector less attractive to other foreign banks to come here and invest in the Indonesian banking industry if they feel that perhaps the state-owned banks are too strong,” said one financial adviser, who declined to be named because of the sensitivity of the matter.

Indonesia’s banking industry offers some of the highest returns in the region with a net interest margin, a key indicator of bank profitability, of around 5-6 percent. Peers in countries like Malaysia, Thailand and the Philippines have margins of between 1.5 percent to 3.6 percent .

Discussions on integrating state banks in Indonesia have gone on for years and previous plans touted have included directly merging the lenders, or their sharia banking units.

Banking shares were muted on Thursday in reaction to the announcement of the holding company. Some analysts highlighted Indonesia’s mixed track record in creating regional powerhouses in various sectors from resources to cement.

“It’s still too early to comment until it’s formed and we see how the banks differentiate themselves under the holding company,” said Bharat Joshi, a fund manager at Aberdeen Asset Management. (Writing by Franciska Nangoy and Fanny Potkin; Editing by Ed Davies and Muralikumar Anantharaman)